By Bloomberg News
For all the roads, bridges and railways that China builds every year in an effort to keep the economy humming, the massive splurge may not be having the desired effect.
That's because more than half of China's infrastructure investment has destroyed economic value instead of generating it, according to a study from the University of Oxford's Saïd Business School.
"The evidence suggests that for over half of the infrastructure investments in China made in the last three decades the costs are larger than the benefits they generate," according to Atif Ansar, one of the study's co-authors.
What's more, unless China shifts its focus to fewer and higher quality types of public works that leave a positive legacy "the country is headed for an infrastructure-led national financial and economic crisis, which is likely also to be a crisis for the international economy," according to the analysis that's published in the Oxford Review of Economic Policy.
China spent more than $10.8 trillion in infrastructure in the last decade alone, according to Bloomberg calculations based on official data of investment in categories such as transport, storage, power supply and water conservation.
The Oxford study's findings jar with views that China's aggressive government-led infrastructure spending is vital to keep growth on track. Researchers examined 21 large rail projects and 74 road projects whose starting dates ranged from 1984 to 2008. They then compared the economic value of those to 806 transport projects built in rich democracies.
Instead of finding a long lasting, positive economic legacy, the Oxford study found that 75 percent of the transport projects in China exceeded budget. While one third of the roads built were congested, 41 percent of them have low usage. Both extremes are equally undesirable because "large unused capacity equals waste, as does too little capacity," according to the paper.
The buildup has also exacerbated China’s swelling debt as cost overruns equal about a third of the nation’s $28.2 trillion debt mountain, according to the paper.
To be sure, proponents can argue that without massive infrastructure spending after the 2008 global financial crisis, the world's second largest economy would have sunk into a deep trough, taking global trade with it.
Still, the evidence from the Oxford study is that, when it comes to China, sometimes less can be more.
"China’s infrastructure investment model is not one to follow for other countries but one to avoid," the researchers wrote.